In a sign of shifting perceptions, the European market appears more amenable to the idea of special purpose acquisition companies, or SPACs. This specific type of IPO exploded in popularity within the United States over recent years. Yet, the European market lagged due to a combination of regulation and differing attitudes on investing. As the global economy enters a state of flux, investors looking for new revenue streams are branching out – with Europe looking towards SPACs.
The European economy continues to see better-than-expected results, despite the on-going pandemic. At a more individual level, countries dependent on tourism continue to flounder. Manufacturing and financial countries are more than making up the slack – and it is here that SPACs are taking root. The United Kingdom’s London Stock Exchange appears poised to actively support the SPAC market. Considering Brexit and the complicated relationship between the U.K. and the Eurozone, this may be less of an indicator than it would have been a few years ago.
What Are SPACs?
Special Purpose Acquisition Companies offer investors a means to generically invest in new startups. Rather than place their confidence in a specific IPO, investors fund a board of experts that subsequently searches for acquisition opportunities. SPACs thrive when liquidity is high, profiting from the reputation of the board in charge.
The United States represents a liberal investing market with looser regulations. This, in turn, created an investor class that thrives on speculation. In contrast, tighter regulations and more effective government agencies in Europe can prevent more speculative investments – including SPACs, to a degree. The recent warming to SPACs comes as European investors take advantage of the shaky global situation.
Confidence, Panic and Blind Faith
The current SPAC explosion comes as investor confidence reaches a fever pitch. The coronavirus pandemic did irreparable damage to many sectors of the economy. Despite this, most stock indices continue to post record highs after a sharp recovery. This is almost entirely due to a policy of “unlimited quantitative easing” put in place by the U.S. government. While it temporarily held the economy aloft, the long-term implications are potentially disastrous.
As investors continue to rake in profits, small businesses continue to crumble, and the overall economy continues to be displaced from the stock market. Large scale investors, protected from bad choices by the treasury policy, sink money into any potential revenue driver. It is important to remember that SPACs are not a sure thing – and when they fail, they fail catastrophically.
Article By: Adam Stone